The New Enterprise Income Tax Law will be brought into effect from January 1st, 2008, which will undoubtedly have great impact on the enterprises. Anthony Chau, Senior Tax Manager from KPMG will be the kick-off speaker, focusing on the key changes in the new law and the relevant implications to already established Foreign Investment Enterprises established in Chengdu. As chairman of Finance & Taxation Working Group of European Union Chamber of Commerce in Chengdu, Anthony shows his warm welcome to you, inviting you to join this meeting to discuss and exchange with other professionals on this.

Registration:

To register for this event please fax your response to the European Chamber at 028 8666 5844 by Wednesday 30 2007, noontime or email chengdu@euccc.com.cn. Persons without prior enrolment will only be allowed participation if space permits.   

Event review

Agenda
1. Welcome by General Manager Zen Chen
2. Introduction of the new PRC Enterprise Income Tax Law by Mr. Anthony Chau, Senior Manager of KPMG and Member of the Board of European Chamber’s Chengdu Chapter
3. Questions and discussion about the impact of the new law on foreign enterprises
4. Evaluation of the participants’ interest by a tax seminar questionnaire in order to find suitable topics for future seminars

Discussion points

1. Welcome
Ms. Chen, General Manager of Chengdu Chapter welcomed all participants and informed the group about the function and aim of the European Chamber and the Working Groups. Ms. Chen stressed out the importance that European enterprises formulate and articulate their interests as well as problems to the European Chamber, which will represent the interests of European Business against Chinese Government.

2. Introduction of the new PRC Enterprise Income Tax Law by Mr. Anthony Chau
In the beginning of the meeting, Mr. Chau introduced the background of the new PRC Enterprise Income Tax Law, before explaining the key changes and policy harmonization in detail. Finally, he pointed out some major impacts on European enterprises.

To summarize Mr. Chau introduced the following topics in detail:
s Background of the new PRC Enterprise Income Tax:
- Chinese government has to comply with international law after WTO accession
s        Facts on PRC Enterprise Income Tax Law:
- effective from 1 January 2008
- new uniform income taxation regime
- applies to all enterprises (FIEs and domestic enterprises)
 
s Main features:
a. Application scope
The new PRC Enterprise Income Tax Law will apply to both FIEs and Chinese domestic enterprises.

b. Tax rate:
General EIT rate of 25% (excluding small-scale/small-profit enterprises and high-tech enterprises which are subject to EIT rates of 20 percent and 15 percent)

c. Tax deductions:
The EIT Law offers tax incentives ranging from reduction of taxable income, bonus and accelerated deductions, to tax exemption or reduction for designated industries such as energy and resource saving, environmental protection, and hi-tech development.
- wages ? no limit
- charitable donations ? 12%
- sponsor fees ? not deductible
- advertisement expenses ? not clear yet
- entertainment expenses ? not clear yet

d. Preferential policies
The EIT Law contains tax incentives which are targeted at enterprises engaged in certain designated industries rather than on the basis of their geographical location, which was the policy focus of previous taxable income.

e. New item: resident enterprise and non-resident enterprise
A resident enterprise is an enterprise which is established in the PRC under PRC laws, or an enterprise established under the laws of a foreign country or one of a Special Administrative Regions (HK, Macao) but which has its place of effective management in mainland China.

Under the EIT Law, resident enterprises are subject to EIT on income sourced from both within the PRC and offshore; that is, resident enterprises will be subject to EIT on their worldwide income.

A non-resident enterprise is an enterprises which is established under the laws of a foreign country or one of the Special Administrative Regions (HK and Macao), and which has its place of effective management outside mainland China and 1. has set up an establishment or a place of business in the PRC or 2. has not set up an establishment or a place of business in the PRC, but derives income from sources in the PRC.

Non-resident enterprises that have an establishment or a place of business in the PRC will be subject to EIT on income derived from the establishment or the place of business in the PRC, and income earned outside of the PRC that is effectively connected with the establishment or the place of business in the PRC

3. Questions and Discussion:
3.1 Implementation regulations:
The implementation notices will probably be published in autumn of 2007. Thus many questions stay unclear as there are no specifications on certain terms such as “place of effective management” etc.
3.2 Sponsor fees
Sponsor fees are not deductible under the new EIT law, thus FIE should now get their former sponsor fees declared as advertisement fees by their business partners.
3.3 High-tech status
There will be more strict rules to get the status of hi-tech company, which is needed to enjoy certain tax reductions. Thus companies should in advance check if their company could obtain the status under the new regulations. Maybe some adjustments in the management or production process could be enough to comply with the new criteria.
3.4 What if there are differences in the old and new EIT Law?
The new EIT Law will in any case overrule the old EIT Law. Hence, accountants need just to consider about the new EIT Law.
3.5 I think that my company does not completely comply with the tax rules. What to do?
Try to run the company in accordance with the established and current tax rules, as in the next year there might be more controls. If the tax administration does not react to your letters and the value of money at discussion is big enough, a company could contact the central government administrations by a middle man, as KPMG.
3.6 What about tax depreciations? Are there any changes?
In future fixed assets can be depreciated against taxable income as long as they are necessary for the production or business.
3.7 Transfer payments and reinvestment
Payments and transfers to investors in foreign countries should be made in this year, since next year they will be subject to tax under the EIT Law. Companies could also consider about reinvestment of their profits into China, as reinvestment leads to 100% refund. 
3.8 Differences between Double-Tax Agreements and EIT Law?
Double-Tax agreements overrule the Chinese EIT Law. Incentives and double-tax agreement further guarantee the agreed incentives or preferences.

4. A questionnaire was issued in order to evaluate future topics for discussion of the seminar.

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